Recession threat to families

Recession could stop more families from working their way out of poverty, researchers have warned.

Recession could prevent families from working out of poverty research suggests Recession could prevent families from working out of poverty, research suggests

In their study The Changing Pattern of Earnings: Employees, Migrants And Low-Paid Families, researchers analysed the earnings of a random sample of 1% of the British population over 30 years.

They found the gap between rich and poor was finally shrinking after two decades of rising inequality. But this could be threatened by recession if unemployment hits the most disadvantaged in society, researchers said.

The study found that increases in unemployment in the two recessions of the 1980s and 1990s resulted in markedly higher levels of wage inequality until 1997. By this time, the report noted, about a third of all British children lived in relative poverty.

It found that while the gap between rich and poor increased for the 20 year period after the study began in 1979, it started to decrease in around 2000.

Wage mobility - how much a person's earnings change from year to year - had fallen as the pay gap widened, but that trend was also reversed from 2000.

But co-author Abigail McKnight, of the Centre for Analysis of Social Exclusion at the London School of Economics (LSE) said the experience of past recessions would suggest the current financial crisis could hit wage mobility. "It is not necessarily that recession will lead to a fall, but we definitely are in danger of one," she said.

Dr McKnight said when unemployment rises more and more people compete for the same jobs which can cause wages to fall. "Definitely we are at risk of that and past experience of recessions suggests that that would be the case but I think it is fair to say that we do not know what this recession is going to look like because we have not witnessed anything like this before."

She said the current turmoil had affected high wage earners in the financial sector, potentially reducing the gap between rich and poor. And she added Government schemes like the New Deal and Tax Credits could also help the most disadvantaged.

The study, for the Joseph Rowntree Foundation, also found that women earners overtook men in achieving higher wage mobility after the late 1980s. It concluded that the introduction of Working Families Tax Credit (WFTC) in 1999 seemed to have increased employment and job retention, increasing the incomes of many low-income families.

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